Suze Orman’s latest
book is The Money
Book for the Young,
Fabulous & Broke.
The Suze Orman Show
airs Saturday nights
on CNBC. Suze can
be contacted at
www.suzeorman.com.

Our two children each have savings I JUST WANT TO MAKE SURE you appreciate allaccounts that are a couple thousand that you are saving by not having a mortgage. A taxdollars strong. Do you have any sugges- deduction simply reduces what you owe; the realitytions how parents should help kids manage is that even after factoring in the deduction you aretheir own money? Should we put strict still paying plenty.guidelines on what it can be used for? Or is For example, if you were in the 28 percent taxpart of the lesson dealing with the repercus- bracket, your mortgage interest deduction meantsions of bad decisions? that every dollar you paid in mortgage interest was—Debi, via e-mail reduced by 28 cents. That means you were still on thehook for 72 cents of every dollar in interest. GettingDEBI, YOU SEEM TO THINK you must choose rid of that obligation—and having the security thatbetween the two options: control the money you own the house outright—is a bigger gain.for them, or let the kids control the money. How As for cutting your tax bill, let’s focus on yourabout a bit of both? Devise a game plan where you investments. Given your income level, you mightand they have a say in how the money is handled. be able to contribute the maximum to your 401(k)If your kids are at least 10, let them control a por- or 403(b) or other retirement plans. The money yoution of the money so they can learn from real- invest is pretax, meaning it will reduce your taxableworld experience. income. Because you are both under 50, you canYou have a huge responsibility in this—not each invest $15,000 a year in your retirementto control the money, but to teach your children account. (Individuals over 50 years old can con-how to manage it. It’s up to parents to teach tribute $20,000.) That willsharplyreduce yourtax-their children about money. Those bad decisions able income.you refer to are often the result of parents failing If you have money to invest outside of yourto show and encourage their kids to make the retirementaccounts,takealookatmunicipalbonds.right choices. The interest you earn is free of federal tax. I recom-Sit down with your children and agree on goals mend looking at municipal bonds that mature infor the money. Do you expect your kids to con- five to seven years.tribute to their college costs? If so, frame the sav-ings account within that context, and work with I have noticed that many people choose tothem to devise an investing game plan that will hold their real property in a trust rather thanhelp them reach that goal. in their personal name. What are the advan-Stock index funds are a smart choice, but once tages of this? If my husband and I decided toyour children are within a few years of college, start create a trust for our home, would we haveshifting the money to lower-risk investments such to refinance?as CDs or money market accounts. Parents who —Gina Davis, via e-mailwant to start a college fund with their kids, buthave limited money to start out with, should check I AM A HUGE ADVOCATE of owning a home inout the T. Rowe Price fund group (
www.troweprice. a trust, and, no, you will not need to refinance to putcom; toll-free 1-800-638-5660). You can open an the home in a trust. You simply need to workaccount for as little as $50 if you agree to make with an estate lawyer who will draw up a revocableperiodic investments of at least $50. living trust for you, and then you will transfer theAnd please make sure you truly teach. Simply home into the trust.saying “Because I say so” is disrespectful to children. While you’re at it, you should change the nameExplain why you want them to save for college, or on your home’s title insurance to the name of thewhy you expect them to pay for their movies and trust. That way, if you ever want to refinance in thepizza out of their savings account. Guidelines are future, it will be an easy process.good, but they have to come with clear explanations The main advantage of holding your propertyand reasoning. That’s how you raise a financially in a trust is how its ownership will transfer whenresponsible child. you die. When your assets are placed within a trust,the inheritance process is extremely straightforward:I am 42 and my wife is 36. Between us we The beneficiaries you have named in the trust willmake about $175,000 a year. We took receive the asset without anyone having to go toyour long-standing advice and paid off our court. Wills have to go through probate court to bemortgage. What can we do now to reduce validated before any of your beneficiaries willour taxes? receive the assets. The probate process can be time-—Deepak Chandrasekhar, via e-mail consuming and costly. C